This article is generating some interest, now that affordable housing is at the top of the must-do list:
Brits buy homes, the Germans rent – which of us has got it right?
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Germany seems to offer cheaper rents and more choice than the UK. But is the grass really grüner?
A question from Dale McClanahan for his fellow housing wonks:
What is it about the after-tax and risk-adjusted rate of return for German investors that makes ownership of purpose-built rental an asset class so welcoming?
There is a very high level of rental inventory and relatively stable prices. I know tenants rights are strong, as the landlord and tenant laws must provide an adequate consumer satisfaction and security of tenure. I infer that the inventory of rental supply must have grown with population and immigration levels, therefore how is it the rental supply system is so healthy?
In Canada we know that the converse is true. Our rental supply system is broken. It systemically discriminates against purpose-built (preferential capital gains exemptions for ownership) and various income tax provisions (e.g. classifying rental income as non-business). The Canadian approach is to “dis-enable” rental supply, which in turns underpins asset values of existing inventory (think shortage) and thus the associated pressures on rental rates: low vacancies – leading to pressures for rental operators trying (almost always unsuccessfully) to circumvent the rent controls necessitated by the rental shortage.
Anyone have the particulars on the German housing taxation regime easily at hand? I’ll trade that for my treatise on the Canadian system.
Dated article (2008) but provides a good basic overview of the German property market.
http://www.spiegel.de/international/business/0,1518,552901,00.html
The real reason that it is uneconomic to build rental is because land prices are dictated by highest and best use, i.e. condominium end-values. People buying individual condos are willing to accept lower returns on rental income than the thresholds required by developers of entire rental buildings and hence the numbers don’t work for rental. Having said that, with relatively stagnant condo values but dramatically rising rents right now (>$3.00/sf is common) the numbers are probably closer than most realize and I could see rental making sense again soon. STIR was/is a good program…a bit of an incentive to help bridge the delta did successfully result in new purpose built rental construction and would continue to do so if it was retained.
If the terms in the Guardian article are correct, then “buying” and “renting” mean very different things for North Americans than do the Germans.
Did anyone notice (assuming I understood it correctly) that in Germany there is
1. rent control (of some sort)
2. lifetime leases.
“Rents are tightly controlled and cannot normally be increased by more than 20% nominally over three years. Unlimited contracts are standard and tenants, if given notice, can demand continuation.”
That means that the difference between owning and renting have some key attributes.
For some reason anti-ownership has become part of sustainability-think. It seems to me to be a misplaced issue for urbanists.
I passed this on to an English friend follows the German market. Here are his ideas (with my categorizations following in brackets – consider these in the Vancouver context):
1. Germans have more land than we do, and there is no big central city like London (Frankfurt is the financial center, but not the political centre. Munich, Hamburg, Cologne etc are all urban centres in their own right) hence there is not the scarcity value of land that we have in the South East of England.
[Decentralization. Metro Van is still a lot cheaper than CoV. The secret to affordable housing in Vancouver is reconfiguring Sperling & Hastings to match the street-width, lot-width and building heights of 4th & Yew, i.e. encouraging a pleasant active pedestrian environment.]
2. They have a “Bauspar” product where you must save up for a deposit on a house with a regular savings plan before the banks will lend you money.
3. Germans are not particularly financially literate. It is an engineering / manufacturing culture, not like UK (“service” based – consultants, media). You notice the difference when you speak to Italian fund managers versus Germans.
[Financial stability? This seems like an interesting product for Vancity etc. to offer, perhaps? http://www.bausparkassen.de/fileadmin/user_upload/english/The_Bauspar_System_in_Germany.pdf%5D
4. There was a post reunification property bubble post 1989 – they are still recovering from that.
[Recent bubble/crash]
5. They don’t have as much immigration as the South East of England [Vancouver] does.
[Immigration]
6. The media has no equivalent of Sarah Beeney as far as I know.
7. Young women have no desire to own property in the way they are desperate to do in the UK
[Hype – I say this is a symptom (that becomes a cause later, but point is we shouldn’t tackle it directly)]
http://www.comoxvalleyrecord.com/news/134117393.html
I don’t think David Sucher’s comment that anti-ownership has become part of sustainability think is accurate. I have randomly included a link above to the Comox Valley Record from November 2011. The city council shot down a modest proposal for much-needed rental housing in that municipality. As far as I am aware, there was no subsidy involved and it was a completely private market proposal. Readers will surely see some of the arguments against it as rather ludicrous.
Several weeks later, a rezoning proposal for a secondary suite was also nixed by Council. Again see some of the arguments against it, especially the alleged potential for drug dealing by the tenants and a City councilor’s reply to it.
http://www.comoxvalleyrecord.com/news/137521263.html
I don’t think anyone is against home ownership. Most renters rent because they have to. However, it appears to me – as one who has followed the affordable housing debate in this province for several years – it’s ratepayers who fear change, innovation, density and sustainability, in the interests of protecting their property values, or so they think.
I chose Courtenay to show how pervasive this attitude is throughout the province and not just in Vancouver.
Not In My Back Yard syndrome is alive and well. This is the major obstacle to sustainability.
Tom Durning – (TRAC) Tenant Resource & Advisory Centre.
I’m just throwing this out there and I may be completely off base, but the rental culture in Germany is also very different. As my German friends have explained and demonstrated when I visited, in Germany the apartment you rent is in effect a shell and little else. German tenants provide their own appliances, fixtures and floor. Should they move, they tend to take these things with them (laminate flooring was invented in part because Germans were looking for lower cost floors) and are responsible for that maintenance.
I can’t help but wonder if this is part of what makes up the difference. A lot of the maintenance costs that we take for granted from landlords are transferred to tenants in this scenario, but on the other hand this also gives tenants a much stronger sense of ownership of their living spaces. If their refrigerator breaks down its up to them to repair or replace it, but then again its also theirs.
The obvious downsides to this are the start up costs of establishing a household for young people are higher and the costs and risks of unexpected maintenance costs. However, it would certainly give people more choice. People with allergies for example, don’t have to settle for searching for rentals that only have hardwood or laminate floors, because they own their floor and bring it with them.
Since implementing this here on the scale needed to test it would be massively impractical and probably heavily resisted by a lot of people, we’ll probably never know for sure. But I really do wonder if that is a reason why overall costs might be lower.
I think you are exactly correct.
The gist is that renting in Germany, with substantial tenant improvements and long-term and protected tenancy), is very different from renting in North America and offers many parallels with our North American understanding of ownership. German renters are _invested_ in their dwelling.
This is a great discussion from R Florida on housing suggesting that in the future it may not be an either/or option. Mobile, urban people may be able to be members in associations or investment pools that provide high quality, well managed apartments, etc.
http://www.strongtowns.org/journal/2011/9/21/richard-florida-on-housing.html